# Summary
- This proposal aims to improve the bridge’s and vault’s economic security by:
    - Changing slashing for vaults from premium redeems and unprocessed redeems from 10% to 2%
    - Increasing the minimum collateral for all vaults to `$1,000 * secure_threshold` to ensure premium redeems and liquidations remain profitable
- Use ~ $145 of the DAO treasury to buy iBTC and burn under-collateralized iBTC in the liquidation vault

# Parameter Changes
Recently, a user [reported](https://discord.com/channels/745259537707040778/991617172407337030/1179866092441706626) a vault that got liquidated because it did not process a redeem request and got slashed for 10% of its collateral. The result was that the vault's collateral ratio dropped below 100%. Hence, the vault’s BTC was no longer secured, and liquidators were not incentivized to redeem iBTC to receive collateral because the collateral value would be less than the redeemed iBTC.

The vault was likely abandoned, which only had ~$130 in collateral and backed 0.003515 iBTC, so the damage is limited to a few USD. However, it highlights that we should change a few parameters to prevent such cases from happening again. Therefore, the proposal suggests to apply the following changes:

- **Reduce the slashing** punishment for premium redeems and unprocessed redeems from 10% to 2%
- **Increasing the minimum collateral** for all types to `$1,000 * secure_threshold` or more specifically:
    - USDT: $1,500 (=1,500 USDT)
    - qUSDT: $1,500 (=7,500 USDT)
    - DOT: $1,300 (=236 DOT)
    - vDOT: $1,350 (=200 vDOT)
    - qDOT: $1,300 (=1,000 qDOT)

**Reducing the slashing** amount will have two effects. First, the change will ensure that punishments for vaults will not cause the collateral ratio to decrease below 100%. This is true if a vault is close to the lowest liquidation threshold in the entire system, which is 105%, so the liquidated collateral would still contain a 3% premium for liquidators. Secondly, it drastically reduces the financial risks for vault operators in case their service is unresponsive or temporarily falls below the premium redeem threshold. This should also support the current attempt to onboard new vault operators and increase mint capacity.

**Increasing the minimum collateral** is required to ensure that premium redeems remain profitable. We have recently seen several days where fees for Bitcoin transactions were ~$20, so premium redeems with a 2% premium on amounts of less than $1,000 would have been unprofitable. The same issue, although to a lesser extent, holds for liquidations if we assume that someone has to (re-)mint iBTC before/after burning his iBTC in the liquidation process. In both cases, a Bitcoin transaction will be triggered, so the proceeds from the premium redeem or liquidation should cover at least the costs of such a transaction. The suggested amount should still be small enough to not jeopardize decentralization but also to ensure profitability for the actions mentioned above.

**Numerical example**
If the vault is completely offline and does not respond anymore, it will get slashed until the collateral ratio is below the liquidation threshold. Assuming a newly registered vault would have at least $1,300 collateral at at 130% collateral ratio and is unresponsive, then users would be able to drain the vault down to $1,050 or 105% collateral ratio, by getting reimbursed on their failed redeems. Below that level the vault would get liquidated. At this point, a liquidator would get ~$50 for the liquidation, which should cover the transaction fees on BTC (if we assume he has to (re-)mint iBTC) and some profit.

Currently the smallest vaults only provide ~$5 to liquidators so even a small increase in BTC fees make it unprofitable for liquidators to do this.

# Burn liquidated iBTC
Given that the liquidated collateral of the vault does not fully cover the iBTC value anymore, it is suggested to use treasury funds to buy 0.003515 iBTC with INTR via HydraDX and burn the iBTC to receive 130.08 USDT, which shall reside in the DAO’s treasury. At a Bitcoin price of $41,418.36 (as of 04.12.2023), this would incur a loss for the treasury of about $15.51.

SubSquare has proposed changes to improve the economic security of the bridge and vault. The changes include reducing the slashing punishment for vaults, increasing the minimum collateral for all types, and burning under-collateralized iBTC in the liquidation vault. The proposal aims to prevent cases where the collateral ratio drops below 100% and liquidators are not incentivized to redeem iBTC. The changes will ensure profitability for premium redeems and liquidations and reduce financial risks for vault operators. The proposal also suggests using treasury funds to buy iBTC and burn under-collateralized iBTC in the liquidation vault. This will result in a loss of about $15.51 for the treasury.

Improving Vault and Bridge Security Parameters

# TLDR

Interlay has completed it’s expansion from BTC bridge to DeFi hub over the last few months. The end of the DeFi hub incentive program at block 3714031, corresponding to ~2023-10-07 (https://interlay.subscan.io/block/3714031), marks a good time to assess the INTR tokenomics and debate improvements and next steps. 

************************************************INTR Goals as per v2 whitepaper************************************************

The goals of the INTR token, as suggested in the [v2 whitepaper](https://gateway.pinata.cloud/ipfs/QmWp62gdLssFpAoG2JqK8sy3m3rTRUa8LyzoSY8ZFisYNB), have so far been:

- Transaction fees
- Governance
- Liquidity bootstrapping (Vaults, LPs, lenders)
- Feature access (currently collators and more in the future)

**Goals of Tokenomics Update**

To successfully navigate the current market and challenges faced by our ecosystem, while making sure the network is in a position to capitalize on upcoming opportunities, the goal of a tokenomics update should be as follows:

- Keep LPs and vaults incentivized to provide capital to the bridge and Defi hub
- Reduce sell pressure on the INTR token
- Improve liquidity of the INTR token

********************************Possible Actions********************************

We identify three possible action items, which help achieve the goals above.

- Redirect part of the INTR rewards for vaults, LPs, and lending supply to staking so that capital providers have an increased incentive to lock INTR instead of selling it
- Deposit INTR into HydraDX’s Omnipool to improve liquidity and stop paying out high rewards for the INTR/USDT pool
- Remove token inflation to limit the total amount of INTR to 1bn

There are likely more approaches that can be taken here, and it would be welcome to hear ideas from the community.

# Problem

With the rewards for LPs and supplier of capital to the lending market coming to an end, the we as a community must decide on whether or not to prolong incentives at the current rates, cut the incentives down, or remove them altogether. Cutting down the incentives or removing them helps reduce selling pressure but will likely lead to capital leaving the bridge and DeFi hub. This in turn would reduce the efficiency at which users can trade and borrow on the DeFi hub and further lower the minting capacity of the bridge.

On the other hand, data analysis suggests that most LPs seem to be selling their INTR rewards, which puts considerable sell pressure on the token at the expense of long-term INTR holder who have staked their tokens to retain ownership over the project and cast their votes in governance. In addition to that, the continuing price decrease of INTR makes it more difficult for the treasury to compensate vaults, LPs, and contributors for the value they add to the network.

The effect on the price, created by the selling pressure, is leveraged by the low liquidity of the token. Although the market makers on centralized exchanges, as well as the liquidity of the USDT/INTR pool on the DeFi hub helped to improve liquidity, both attempts have not achieved sufficient liquidity for the token to efficiently trade at size.

# Suggested Solutions

## Redirecting Rewards

If we want to maintain the DeFi hub and ensure there is sufficient liquidity for efficient trading and borrowing/lending, then we cannot completely remove LP rewards. The same holds true for the bridge, which needs to attract more capital and Vaults to grow. To still reduce the selling pressure while encouraging LPs and vaults to provide capital and services, we suggest to **redirect 50% of the token emission currently distributed to vaults, LP, and lenders to INTR stakers (vINTR holder).** 

This would change the APRs roughly to the value in the table below

|  | Vault | USDT/iBTC Pool | DOT/iBTC Pool | INTR/USDT Pool* | Staking (max lock-up duration) |
| --- | --- | --- | --- | --- | --- |
| Current APR | 30% | 29% | 24% | 53% | 34% |
| New APR | 15% | 15% | 12% | 0% - 27% | 95% |

*Pool incentives for this pool could be replaced by protocol owned liquidity, see the next section.

On a first sight this seems to make it much less attractive to LP or operate a vault since the direct rewards would be 50% lower than they are now. However, receivers of the rewards can still lock their INTR in staking and receive the residual (that part of INTR that has been redirected to staking) over time. This should encourage more people, especially everyone who believes in the project's long-term success, to stake their rewards rather than selling them directly, without making economic sacrifices.

Compared to directly emitting staked rewards, this solution also allows individuals to decide if and for how long they are willing to lock up their gains. E.g. if they choose to only lock them up for half of the maximum length, they would still get 50% of the maximum staking reward (~47% APY in the above example).

At the bottom line, this proposal does not change the net INTR emissions, nor does it meaningfully impact the total APR protocol participants can receive for their services. It has the potential, however, to significantly reduce selling pressure on INTR as it creates a strong economic incentive to stake rewards rather than sell them.

It is worth noting that vaults can already use yield-bearing assets as collateral, such as qTokens from lending as well as vDOT, a staking derivative powered by Bifrost. This allows vaults to “re-stake” their capital and increase earnings, such that a lower subsidy with INTR tokens at around 15% is still an attractive yield pick-up (Vault rewards are paid “on top” of staking/lending).

## Deposit INTR into HydraDX Omnipool as Protocol Owned Liquidity (POL)

As already stated, the low liquidity of INTR intensified the price decrease of INTR due to constant sales of INTR tokens. One option to increase liquidity, which has already been [discussed by the community](https://interlay.subsquare.io/posts/18), is to deposit a considerable amount of INTR tokens to HydraDX’s Omnipool via treasury. Despite the potential risks involved with depositing a large amount of INTR into Omnipool, it also comes with several benefits and the discussion has generally received positive feedback. 

We suggest revisiting this topic and discussing how many INTR the Interlay DAO should contribute to the Omnipool as POL. Likewise, we should discuss if it makes sense to continue incentivizing the INTR/USDT pool at the current TVL targets (even at reduced rates), considering that this pool is very expensive in terms of rewards and only a small portion of the liquidity is required for the pools main use cases:

- Onboarding new users that do not yet have INTR
- The “bring your own fee” feature.

In the [previous discussion](https://interlay.subsquare.io/posts/18#34) it was suggested that the DAO would need to deposit around 20m INTR to Omnipool in order to achieve the same level of liquidity as a $50,000 TVL Uniswap V3 pool on Stellaswap. Due to price changes of INTR, this amount would increase to around 63m INTR (25% of the treasury) by now. To put this into perspective, to achieve the same liquidity as currently in the INTR/USDT pool, the DAO would have to deposit around 14.7m INTR into the Omnipool.

While a deposit of 14.7m would not improve liquidity, it would at least remove the need for the Interlay treasury to keep paying APRs for LPs of that pool of +50% at a minimum risk for the DAO. The other extreme of depositing 63m INTR (the number mainly comes from the comparison to a former proposal for a Pulsar pool on Stellaswap) seems to expose the DAO to a lot of risk given that this would be a large part of the treasury. 

Therefore, one suggestion could be to start with a deposit of 12m-15m INTR to create a substitute for the INTR/USDT pool and stop incentivizing this pool altogether. In fact, the treasury could then sell some INTR for USDT in the Omnipool and use that to LP a small amount of INTR/USDT on Interlay to ensure some minimum liquidity is available to maintain the functions mentioned above. Subsequently, more INTR can be added to the Omnipool in the future after an evaluation of the initial deposit and/or when INTR price has come back from it’s all-time low. 

# Remove inflation

As the third action item, we would like to bring to discussion removing the planned inflation of INTR after year 4 (counting from the token generation event), effectively limiting the INTR supply to 1 bn. 

Conversations in the community seem to indicate that many (potential) holders are worried about the possible dilution in the future, with so many unknowns.

-- Philipp @ Interlay

**Update 21/09/2023:** Corrected the amount of INTR the DAO would need to put into the HydraDX pool in order to correspond to the current INTR/USDT liquidity (7m -> 15m)

Interlay is a platform that connects Bitcoin and other cryptocurrencies to DeFi. They have completed their expansion from BTC bridge to DeFi hub over the last few months. The end of the DeFi hub incentive program marks a good time to assess the INTR tokenomics and debate improvements and next steps. 

The goals of the INTR token are transaction fees, governance, liquidity bootstrapping, and feature access. To successfully navigate the current market and challenges faced by the ecosystem, the goal of a tokenomics update should be to keep LPs and vaults incentivized to provide capital to the bridge and DeFi hub, reduce sell pressure on the INTR token, and improve liquidity of the INTR token.

Three possible action items are identified, which help achieve the goals above. These include redirecting part of the INTR rewards for vaults, LPs, and lending supply to staking, depositing INTR into HydraDX’s Omnipool to improve liquidity, and removing token inflation to limit the total amount of INTR to 1bn.

LP rewards are coming to an end, and the community must decide on whether or not to prolong incentives at the current rates, cut the incentives down, or remove them altogether. The effect on the price, created by the selling pressure, is leveraged by the low liquidity of the token. 

If we want to maintain the DeFi hub and ensure there is sufficient liquidity for efficient trading and borrowing/lending, then we cannot completely remove LP rewards. One suggestion is to redirect 50% of the token emission currently distributed to vaults, LP, and lenders to INTR stakers.

Another suggestion is to deposit a considerable amount of INTR tokens to HydraDX’s Omnipool via treasury to increase liquidity. 

As the third action item, we would like to bring to discussion removing the planned inflation of INTR after year 4, effectively limiting the INTR supply to 1 bn.

Call for Discussion: Next Steps for INTR Tokenomics

Based on the discussion [Next Steps for INTR Tokenomics](https://interlay.subsquare.io/posts/24), we would like to gauge sentiment for a proposal that would enact the following action items:

- Deposit 12.5m INTR into HydraDX to create the same liquidity as in the current INTR/USDT pool and stop paying incentives for that pool (this will require a separate proposal though)
- Remove the 2% inflation after year 4 of the token launch, as a first step to make INTR deflationary
-  Change the reward distribution for vaults, LPs, lending and staking as summarized in the table below (redirecting 50% of the rewards for most parts)


## Block Rewards after change*
|  | Current Rewards 90 days | Current per block rewards | New per block rewards | New Rewards 90 days |
| --- | --- | --- | --- | --- |
| iBTC/USDT | 3,800,000 | 5.864197531 | 2.932098765 | 1,900,000 |
| iBTC/DOT | 2,000,000 | 3.086419753 | 1.543209877 | 1,000,000 |
| INTR/USDT | 2,000,000 | 3.086419753 | 0 | 0 |
| iBTC | 0 | 0 | 0 | 0 |
| DOT | 450,000 | 0.6944444444 | 0.3472222222 | 225,000 |
| USDT | 210,000 | 0.3240740741 | 0.162037037 | 105,000 |
| Vaults | 27,753,351 | 42.8292456 | 21.4146228 | 13,876,676 |
| Staking | 3,664,929 | 5.6557541660 | 33.5981547442 | 21,771,604 |
| Total | 39,878,280 | 61.54055532 | 59.99734545 | 38,878,280 |

## Yield after change
**Note:** It's worth mentioning that the vault APY only includes INTR rewards. Any yield coming from the collateral (e.g. staking yield or lending yield+rewards) will accrue on top of the numbers in the table.

|  | Current APY | New APY |
| --- | --- | --- |
| iBTC/USDT - pool | 44.0% | 22.0% |
| iBTC/DOT - pool | 33.0% | 15.5% |
| INTR/USDT - pool | 60.0% | 0.0% |
| iBTC - lending | 0.0% | 0.0% |
| DOT - lending | 14.9% | 8.3% |
| USDT - lending | 11.4% | 8.0% |
| Vaults | 58.0% | 29.0% |
| INTR staking | 41.5% | 247.4% |

*EDIT: The amounts mentioned in the column "Current Rewards 90 days" where actually distributed over ~92 days, such that the current and new *per block rewards* were/are slightly lower what is displayed here. This does not change the total amount to be issued.

- A proposal has been made to change the way rewards are given out for certain cryptocurrency transactions.
- They want to deposit a certain amount of INTR into HydraDX to create liquidity and stop paying incentives for a certain pool.
- They want to remove the 2% inflation after year 4 of the token launch to make INTR deflationary.
- They want to redirect 50% of the rewards for most parts of the transactions.
- The yield for certain transactions will change if this proposal is accepted.

Poll: Next Steps for INTR Tokenomics

# About us

[Bifrost](https://bifrost.finance/) is a dedicated liquid staking Layer 1 built on Substrate powered by Polkadot providing non custodial decentralized cross-chain liquid tokens for staked assets. By leveraging off Polkadots cross-consensus message format (XCM) it can provide standardized cross-chain liquid staking solutions for multiple chains notably Polkadot (vDOT), Kusama (vKSM) and the first LST solutions on both Moonbeam (vGLMR), Moonriver (vMOVR) as well as other multiple chains (currently 6+ chains). Bifrost facilitates the issuance and deployment of liquid staked assets (“vTokens' '), allowing users to earn staking rewards while participating in DeFi, such as liquidity provisioning on DEXs, and lending/borrowing. Bifrost aims to offer a seamless staking and DeFi experience for PoS users and enable developers to build innovative applications around Bifrosts’ liquid staking derivatives (vTokens).

# Summary

This proposal aims to add vDOT (Bifrost DOT LST) to the Interlay lend market, preparing for the following use cases:

- Increase base income for lenders who deposit IBTC, DOT, or any other asset as collateral in the lend market.
- Activate leveraging staking by rotating borrowed DOT stake to vDOT and depositing it as collateral.

Therefore, this proposal will perform the following functions (Check details at the "Technical Details" section below):

- Enable vDOT as collateral in the lending market.
- Add vDOT lending market.
- Activate vDOT lending market.

## Why vDOT

vDOT is a liquid staking token issued by the Bifrost SLP pallet. It represents staked DOT on the Polkadot Relay, but it is also a fungible and tradable asset. vDOT has unique features such as Fast-Unstake, Stable Swap, Automatic validator selection, Cross-chain voting, and deposit for harvest in DeFi. Additionally, vDOT naturally earns yield through staking rewards as its value appreciates. For more details about vDOT, please refer to the links below:

vDOT Application: https://bifrost.app/vstaking/vDOT

![Untitled](https://i.ibb.co/b5Pkfgq/Untitled-18.png)

vDOT logic behind: https://docs.bifrost.finance/builders/liquid-staking-slp/vdot

OpenGov+Automatic Validator Selection: [https://docs.bifrost.finance/builders/liquid-staking-slp/vdot#vdot-validator-se](https://docs.bifrost.finance/builders/liquid-staking-slp/vdot#vdot-validator-set)

### Recent Developments and Collaborations

- **The growth of vDOT in last month**: The total vDOT volume staking has exceeded **1,450,000**, with a monthly growth rate of 11.23%.
- **Utilities of vDOT in cross-chain scenarios**: Bifrost has completed the asset registration of all vToken on the Moonbeam and Moonriver network. Users can use the Moonbeam App to interact with xcvDOT and transfer assets between Bifrost and Moonbeam. Moonbeam App bridge: https://apps.moonbeam.network/moonbeam/xcm
- **vToken voting in relay-chain**: This feature allows users to participate in Kusama’s OpenGov governance (vDOT will be the next) on Bifrost parachain. It is currently in the final testing phase and is expected to be launched on the Bifrost Dapp next month. For more details, please refer to: https://x.com/0xLurpis/status/1706326874421661763?s=20
- **vToken Stable Swap**: It utilizes the LST Stable Pool to achieve low slippage swaps between LST and its original token. All vTokens on Bifrost Kusama have been adapted for Stable Swap. https://bifrost.app/swap?tab=pool
- **vDOT Vault on Interlay**: Interlay has proposed vDOT as collateral for Vault creation, allowing anyone to choose vDOT as collateral when establishing an IBTC Vault on Interlay. The staking reward feature of vDOT will enhance the collateral income for Vault creators, enriching the revenue attributes of Interlay Vault collateral.
- **vDOT minted by HydraDX Treasury, via XCM**: HydraDX used the treasury address to cross-chain invoke Bifrost SLPx and minted 81,800 vDOT, which was automatically transferred back to HydraDX to enrich the treasury revenue. This transaction was completed in one step with the help of SLPx. https://twitter.com/TheDolpha/status/1706358817225646177

### What benefits for Interlay lend market?

- **Increase passive income for lenders and expand the TVL of the lend market.**

vDOT naturally earns rewards from DOT staking, therefore vDOT lenders can earn DOT staking APY + Lend APY + INTR APR.

- **Introduce Leveraging Staking, combining staking rewards.**

Loop lending is the underlying logic for leveraging staking. This means that it requires repeated operations of collateral depositing, borrowing, and deposit again to increase leverage while increasing your LTV. By stacking the leverage of vDOT, higher DOT staking returns can be obtained. For example, if the leverage of vDOT is expanded to 1.5 times, the APY of vDOT staking will also expand 1.5 times for your principal (actual situation may involve factors such as interest rates).

How to establish Leveraging Staking?

1. First, collateralize IBTC, DOT, vDOT or USDT in the Lend Market.
2. Borrow DOT and mint to vDOT.
3. Collateralize the borrowed vDOT in the Lend Market and repeat the above steps.

Below is an example of DOT leveraging staking by using vDOT 

(*The following charts are for the purpose of understanding the principle of leveraging and do not take into account details such as floating lend rates, utilization rate or live exchange rate and etc*.)

![Untitled](https://i.ibb.co/DL2rcg3/image-15.png)

Based on the assumed lending market conditions mentioned above, we can derive the following results under the 65% LTV:

![Untitled](https://i.ibb.co/SrsMzhY/image-14.png)

As described in the chart above, leveraging user can achieve an approximate total APY of 50% with a near "1" health factor by combining vDOT lending positions and leveraging DOT's staking APY multiple times.

# Technical Details
Extrinsic: https://polkadot.js.org/apps/?rpc=wss%3A%2F%2Frpc-interlay.luckyfriday.io%2F#/extrinsics/decode/0x0302086400010300000030390a00d0bf0b00a086010020a107000000ee042cfc430f00000000000000000000000000000000000000000000000000000000000000c52ebca2b10000000000000000000000b2d3595bf006000000000000000000350c00010000c16ff286230000000000000000000000c16ff28623000000000000000000020400000064010103000000

Bifrost is a platform that allows people to earn rewards by staking their cryptocurrency. They have a special type of token called vDOT that represents staked DOT on the Polkadot Relay. vDOT can be used to earn rewards while participating in DeFi. Interlay is a lending market that allows people to earn money by lending their cryptocurrency. They want to add vDOT to their lending market so people can earn even more money. By using vDOT, people can also do something called leveraging staking, which means they can earn even more rewards by borrowing and lending vDOT.

Adding vDOT into Interlay Lend Market

**Introduction**
Polkadex is a fully non-custodial peer-to-peer orderbook-based cryptocurrency exchange for the DeFi ecosystem built on Substrate.

**Goal**
We plan to submit a governance proposal to Interlay this coming Friday (October 6th, 2023), aiming to open an XCM channel between Polkadex and Interlay parachains. The XCM channel will facilitate token transfers and further cross-chain developments and DeFi initiatives between the two parachains.

**Opportunities**
The main use case is that users will be able to transfer their iBTC and other Interlay parachain assets to Polkadex for trading on the Polkadex Exchange. With more parachain listings on the way to the Polkadex Exchange, iBTC and other Interlay assets can be exchanged for other Polkadot parachain tokens and vice-versa, then transferred to subsequent parachain destinations.

This will also create opportunities for traders to borrow and lend via the Interlay platform to trade on Polkadex. Additionally, it can pave the way for the creation of a derivatives platform.

**Discussion Point**

**Any arguments against opening this XCM channel?**
We want to understand if the community has any strong arguments against this action. We are open to answering any questions before submitting the proposal to ensure a favourable outcome.

- Polkadex is a cryptocurrency exchange for DeFi.
- They want to connect with Interlay to make it easier to trade iBTC and other assets.
- This will create more opportunities for trading and borrowing/lending.
- They are asking if anyone has any concerns before they make the connection.
- They want to make sure everyone is happy with the proposal.

Open an XCM channel with Polkadex

# Summary
- **EDIT:** The incentives and pools for the DEX were changed to reflect the community feedback as well as current market conditions
- Bootstrap liquidity for DEX and lending market through incentives to ensure a successful launch with sufficient liquidity to attract power users
- Source enough DOT supply into lending market to enable the usage of the iBTC staking product
-  **EDIT:** Due to various blockers, the iBTC staking product will not be live for launch.
-**EDIT:** ~~Register qDOT and qUSDT as vault collateral to improve efficiency and source liquidity into lending market~~ This is postponed and first tested on Kintsugi for safety reasons.
- Focus on main DEX pools (iBTC/DOT, iBTC/USDT, INTR/DOT) and lending markets (iBTC, USDT, DOT)
- A total of 8.46m INTR (~$130,000) would be requested from the treasury to incentivize DEX pools and lending markets for three month. This amounts to around 3.5% of the current treasury
- Target TVLs are $1.6m for the DEX and $1.4m for the lending market

# Goal
The goal of this discussion post is to get community feedback on the plan outlined below, how to successfully launch the DeFi hub on Interlay and to attract sufficient capital to enable efficient usage of the DEX, lending market, bridge as well as the highly anticipated iBTC staking product.

In order to achieve this, two main requirements need to be put in place. First, to attract enough liquidity, it is proposed to incentivise the lending markets and liquidity pools. Secondly, to ensure sufficient supply of DOT into the lending market, which is a requirement for the iBTC staking product to work, it is proposed to register qDOT as vault collateral.

qDOT is the token that a supplier receives for depositing DOT into the lending market. qDOT can be redeemed for DOT any time, given the market has free liquidity. Doing so, vault operators don’t have to choose between depositing into the lending market or locking DOT as vault collateral but can utilize both, thereby providing borrowing liquidity for DOT as well as minting capacity for iBTC.

# Vault collateral
**EDIT:** This is postponed and first tested on Kintsugi for safety reasons and not part of the current proposal. 
As stated above, registering qDOT as vault collateral is considered one of the main pillars for a successful launch of the iBTC staking product. Apart from qDOT, it is also proposed to register qUSDT as vault collateral. Albeit not being so popular as collateral, utilizing qUSDT as vault collateral would still pose an improvement in terms of capital efficiency and should have similar effects as qDOT in terms of supply in the USDT lending market.

Based on the [analysis](https://github.com/interlay/collateralization-analysis/) the following parameters are proposed:

| Asset | Liquidation Threshold | Premium Redeem Threshold | Safe Mint Threshold |
| --- | --- | --- | --- |
| qDOT | 125% | 140% | 155% |
| qUSDT | 135% | 145% | 155% |

Since qTokens are just a claim of the underlying token deposited into the lending market, the underlying tokens served as a proxy in the analysis and hence both share the same thresholds.

# DEX

One of the main goals of the launch in order to be considered successful is to attract sufficient liquidity into the pools to ensure efficient trading, even of larger positions. This is an important requirement to attract ‘power user’ that account for the majority of the volume on a DEX and are therefore a critical user group to achieve a level of trading volume that generate sustainable trading fees for liquidity provider.

Based on the experience from the Kintsugi launch, it is proposed to launch with three essential pools, with a focus on the iBTC/USDT pool, which attracted the most volume and TVL on Kintsugi (kBTC/USDT), despite lower APY compared to the kBTC/KSM pool. The proposed incentives would run for 3 month to allow enough time for trading activity to gain traction while simultaneously avoid draining too many funds from the treasury.

### Pool Overview

| Pair | Target TVL in USD | APR at target TVL | DOT deployed at target TVL | iBTC deployed at target TVL | INTR | INTR in USDT |
| --- | --- | --- | --- | --- | --- | --- |
| iBTC/USDT | 1,000,000 | 22.3% | — | 19 | 3,800,000 | $55,735 |
| iBTC/DOT | 400,000 | 29.3% | 43,290 | 8 | 2,000,000 | $29,334 |
| INTR/USDT | 200,000 | 58.7% | 21,645 | — | 2,000,000 | $29,334 |
| Total | 1,600,000 |  | 64,935 | 27 | 7,800,000 | $120,271 |

Since most of the yield for LPs will come from incentives in the beginning, it is suggested to launch the DEX with 0% fees to attract as much volume as possible.

# Lending

Similar to the DEX, it is suggested to focus on the most important markets to bootstrap enough liquidity for borrowing and lending activities, with a special focus on the DOT market due it’s importance for the iBTC staking product.

## Market Overview

### Interest Rates Parameter

The interest rate parameters were calibrated to provide a competitive supply and borrow APY at the optimal utilization ratio compared to other lending protocols on Polkadot. The jump rate for DOT was calibrated in a way to still provide excess return for the iBTC staking product at optimal utilization. Note that the optimal utilization for DOT is suggest to be at 80% to create more liquidity to withdraw qDOT to DOT if vaults that use qDOT as collateral get liquidated.

| Market | Base Rate | Jump Rate | Full Rate | Optimal Utilization |
| --- | --- | --- | --- | --- |
| iBTC | 0.0% | 5.0% | 50.0% | 90.0% |
| DOT | 5.0% | 20.0% | 50.0% | 80.0% |
| USDT | 0.0% | 10.0% | 50.0% | 90.0% |

### Security Parameters

Based on the [analysis](https://github.com/interlay/collateralization-analysis/) the following parameters are proposed:

| Market | Max LTV | Liquidation LTV | Reserve Factor | Close Factor | Liquidate Incentive | Liquidate Incentive Reserved Factor | Supply Cap (# tokens) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| iBTC | 0.63 | 0.67 | 10.0% | 50.0% | 110.0% | 0.0% | 30 |
| DOT | 0.67 | 0.77 | 10.0% | 50.0% | 110.0% | 0.0% | 1,000,000 |
| USDT | 0.67 | 0.74 | 10.0% | 50.0% | 110.0% | 0.0% | 600,000 |

Details about the parameters can be found in the (github repo)[https://github.com/interlay/interbtc/blob/f0a0144a0cd7e512bf9b2c55e57b12e4b3b5e9c4/crates/loans/src/types.rs#L89].

### Incentive Estimates

First and foremost it’s worth noticing that no incentives for the supply of iBTC are suggested. This is because the iBTC staking product relies on users supplying iBTC and locking it as collateral in order to receive staking rewards. Hence. the target TVL for iBTC is equal to the `target TVL of DOT * DOT assumed utilization / iBTC max LTV`.

The incentives for the other markets are suggested to run for three months and are merely a means to bootstrap the initial liquidity. After attracting sufficient liquidity, it is assumed that users will borrow funds to use them in DeFi application, even if it’s just to do yield arbitrage between Interlay and other lending protocols.

| Market | Target TVL (USD) | Supplied Tokens | Incentive APY | Supply APY | Total APY | Rewards (INTR) | Rewards (USD) | Assumed Utilization |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| iBTC | 595,000 | 23 | 0.00% | 1.11% | 1.11% | 0 | 0 | 20% |
| DOT | 500,000 | 108,225 | 5.28% | 19.06% | 24.34% | 450,000 | $6,600 | 75% |
| USDT | 300,000 | 300,000 | 4.11% | 8.89% | 13.00% | 210,000 | $3,080 | 80% |
| Total | 1,395,000 |  |  |  |  | 660,000 | $9,680 |  |

**Note:** All calculations assume an INTR price of $0.01466722. The actual APR and TVL might change due to price changes of INTR and the other tokens used in these calculations.

Interlay is planning to launch a DeFi hub with a DEX, lending market, and bridge, and is seeking community feedback on the plan. The goal is to attract enough liquidity to ensure efficient usage of the DEX, lending market, bridge, and the highly anticipated iBTC staking product. To achieve this, the plan proposes incentivizing the lending markets and liquidity pools and ensuring sufficient supply of DOT into the lending market. The proposed parameters for qDOT and qUSDT as vault collateral are also provided. The DEX will focus on the iBTC/USDT, iBTC/DOT, and INTR/DOT pools, and the lending market will focus on the iBTC, USDT, and DOT markets. The proposed incentives for the DEX and lending markets would run for three months, and the target TVLs are $1.6m for the DEX and $1.4m for the lending market.

Interlay DeFi Hub Launch Discussion Post

RPC nodes are used to connect to the Interlay and Kintsugi networks. Dwellir and OnFinality are both providers in the Dotsama space to provide such services (think Infura for Dotsama).

It's generally a good idea to have two providers for redundancy in case one provider might go offline. However, the treasury should also not overspend on RPC node provision.

*Current status*

Currently, there are the following options for RPC nodes:
- Kintsugi/Interlay Labs. These are not invoiced against the treasury but the Interlay team operates these.
- OnFinality. OnFinality operates nodes for Kintsugi and Interlay networks. The currently charge the Kintsugi treasury only for the RPC node provision.
- Dwellir. Dwllir has recently set up Kintsugi and Interlay nodes as well. They are not charging the treasury but opened a discussion post on the Interlay forum to operate nodes in the future.

**Update 20 June 2023**

*Current costing*

- Please see the proposals and discussion by both OnFinality and Dwellir in their respective posts

*Next steps*

- OnFinality shared their proposal here: https://interlay.subsquare.io/post/23
- Dwellir shared their proposal here: https://interlay.subsquare.io/post/21

*What you can do*
Please share your opinion in the poll below. If you have comments, please leave them below.


1. RPC nodes are used to connect to networks like Interlay and Kintsugi.
2. Dwellir and OnFinality are providers of RPC nodes.
3. It's good to have two providers for redundancy.
4. The treasury should not overspend on RPC node provision.
5. OnFinality and Dwellir have shared their proposals for RPC node provision.

Future of RPC node providers

Hello, Interlay community!

Today, we'd like to introduce you to Dwellir AB, a trusted partner in the Polkadot ecosystem. We are a world-class Remote Procedure Call (RPC) infrastructure provider. Our journey has been marked by our successful operation of nodes for over 40 networks, processing more than 500 million requests daily.

Our defining characteristic? We don’t rely on public clouds for running our core systems. Instead, we prioritise privacy and integrity. We own and operate our bare metal machines across four locations in Europe and Africa. In the coming year, we will launch in the US and Asia.

We are writing this discussion post as we’d like to become a core provider of RPC services for your community for the following reasons:

- **Decentralised operations**: In alignment with the spirit of DeFi, our services are decentralised. We don't use public clouds, preserving the sanctity of your projects.
- **Streamlined node management**: We reduce overhead on your team by using top-notch software to manage nodes, including automated upgrades. This leaves your team free to focus on what truly matters - innovation and development.
- **Low latency, high access**: With Dwellir, you can enjoy low latency, ensuring your users have a seamless experience with your services.
- **Fair pricing**: We believe in a fair pricing policy that balances quality and affordability. With Dwellir, you get the best of both worlds. 

In the throes of a bear market, the necessity for treasuries to exercise mindful expenditure becomes paramount. At Dwellir, we understand this and are committed to ensuring ongoing costs, a benefit from our ownership of bare-metal infrastructure. This allows us to avoid the price fluctuations commonly associated with cloud-based solutions, providing predictable cost structures. 

**Based on our comprehensive infrastructure and service offerings, our quarterly costs for operating Interlay/Kintsugi RPC services will be approximately $2284 (reduced from 4000)**. This cost commitment reflects our dedication to supporting your work without compromising financial sustainability, even in challenging market conditions.

As we look towards the future, we are eager to engage with you, answering any questions you may have and addressing your unique needs. Our commitment extends beyond providing top-tier RPC infrastructure. We are dedicated to fostering the growth of the Interlay/Kintsugi ecosystem, recognising the transformative potential of decentralised finance. 

Dwellir AB is a company that provides Remote Procedure Call (RPC) infrastructure services for over 40 networks, processing more than 500 million requests daily. They own and operate their bare metal machines across four locations in Europe and Africa, and will soon launch in the US and Asia. 

Dwellir offers decentralised operations, streamlined node management, low latency, high access, and fair pricing. They believe in a fair pricing policy that balances quality and affordability. 

Their quarterly costs for operating Interlay/Kintsugi RPC services will be approximately $2284, which is reduced from $4000. They are committed to ensuring ongoing costs and predictable cost structures. 

Dwellir is dedicated to fostering the growth of the Interlay/Kintsugi ecosystem and supporting their work without compromising financial sustainability.

Dwellir - Your Decentralized RPC Infrastructure Partner

Tldr;
=====

-   OnFinality has a proven track record providing RPC API support for Kintsugi and Interlay and plans to continue this at the end of each quarter
-   Since Q3 of 2021 we have [lodged proposals to the Kintsugi treasury](https://kintsugi.subsquare.io/user/a3byawr54JPxf1RpvnbLZPkZN2Q9Ry7gg5CXiqcvEtgPWvQM8/democracy/proposals) which have always been successful
-   Moving forward we will separate Kintsugi and Interlay costs and lodge two separate treasury proposals referencing this original discussion post
-   **Full Proposal:** [https://docs.google.com/document/d/1pPMvUxpWc0tX70t12yW9QskbrF1VY8vKCo3sFw2E_TY/edit?usp=sharing](https://docs.google.com/document/d/1pPMvUxpWc0tX70t12yW9QskbrF1VY8vKCo3sFw2E_TY/edit?usp=sharing)

Original Motivation
=====

Setting up blockchain infrastructure is difficult, time consuming, and expensive:

-   It requires a level of server development expertise that many do not have

-   It's costly to run a full node nearly continuously, especially when your dApp's traffic is low and inconsistent. 

-   Running production level infrastructure is especially tricky. You need to autoscale quickly to handle bursty traffic, and you want to provide services in different regions around the world to provide low latency services - all of this is incredibly costly, but comes with significant economies of scale for a provider.

-   DevOps requires constant attention - time that would be better spent elsewhere building.

A shared node API service helps mitigate these barriers of entry to trying accessing a new protocol by reducing all these costs to near zero. We manage all the nodes for our users and distribute them across the world (with intelligent routing) to achieve global scalability from day 1, we monitor each node and ensure that they meet certain service levels, and we have the expertise and scale to handle production workloads and high peak traffic.

In summary, we try to reduce the pain of getting started on both Kintsugi and Interlay Networks and minimise the costs of accessing secure nodes while traffic from your dApp is low. When you grow, you can continue to use our shared API service, or we also [provide access to one click deploy dedicated Kintsugi and Interlay nodes](https://onfinality.io/dedicated_nodes) to any cloud of your choosing.

Background on our RPC Service
=============================

Since inception in November 2020 we have made a large number of improvements to our Ultimate API service focussing on three key areas; performance/reliability, providing more value from our Ultimate API service, and cost optimisation.

### Performance/Reliability

OnFinality is operationally striving for a minimum of 99.99% reliability, which means less than an hour of downtime each year.  We proudly display and share our [90 day uptime statistics](https://status.onfinality.io/) for each network publicly [here](https://status.onfinality.io/uptime/r40wwpclbwzm).

We have invested hugely into a team dedicated to optimising our application gateway and caching layer to ensure that we provide the fastest possible service for our customers. We run clusters in 5 different regions (North Virginia, Frankfurt, Tokyo, Singapore, and Australia) and across 3 different cloud providers (AWS, GCP, Alicloud) to ensure that we are fault tolerant to any single region or cloud provider ceasing service.

### Providing more value from our Ultimate API service

For customers that do sign up for paid API keys, we've been adding more and more features to provide a better experience. [Geolocation insights](https://blog.onfinality.io/onfinality-adds-geolocation-insights-for-dapps-and-api-apps/) provide statistics about where in the world communities are to help influence decisions around where to expand infrastructure and to view the effectiveness of regional BD initiatives.  We can also now [automatically upsize the storage on nodes](https://blog.onfinality.io/onfinality-developer-update-auto-expand-storage-for-dedicated-nodes/) to prevent the risk of any downtime.

Finally, in Q2 of 2023 OnFinality [launched Trace API](https://blog.onfinality.io/onfinality-launches-trace-api-for-unprecedented-visibility-into-your-dapps/) support which was a huge enhancement allowing unprecedented visibility for dApp builders. Trace API captures and records vital information otherwise not available through regular RPC methods and extrinsics (such as complete XCM transfer records and complete list of balance changes). These APIs are essential in order for [developers like Polkaholic](https://blog.onfinality.io/onfinalitys-new-trace-api-helping-colorful-notion-get-trace-data-from-over-40-substrate-chains/) to parse and understand XCM transactions.

### Cost Optimisation

OnFinality is very conscious about providing a strong level of support for Interlay/Kintsugi at an extremely competitive price. Cost saving measurement has been a significant focus on behalf of our customers, with advanced rate limiting controls implemented. We can, for example, rate limit each client on a burst and sustained basis and based on the request methods that they are calling (e.g. each state_traceBlock request is rate limited 45x more than chain_getBlock), [read more about these advanced rate limiting tools that we've developed here](https://documentation.onfinality.io/support/public-rate-limits).

Meaning that we can continue to provide generous public API endpoints for over 40 different networks for common-good applications, but restrict access to high volume users that abuse this free service. We've been able to manage our costs significantly on behalf of our customers as a result.

We've [developed and shared our approach towards service sustainability](https://polkadot.polkassembly.io/post/1270), with the introduction of a 'Paid API Revenue Share Discount' scheme. In this scheme OnFinality pools the revenue from customers that pay for higher API pricing plans and distributes this revenue pool to partners that currently pay for and own each API endpoint proportionally based on the number of paid API requests that go to that API endpoint. The scheme was introduced in Q1 of 2023 and resulted in a discount to [Interlay's Q1 treasury proposal](https://docs.google.com/document/d/1nUjQxqfNXfJz0ZCEoVRjDFqzKTFReLxRhZX6SBKaU48/edit?usp=sharing) of $153.63.

Service Details 
=====

From inception of the Kintsugi API Service on 2023-10-12 until 2023-05-31 our Kintsugi and Interlay API service has:

-   Served a combined total of over 2.5 billion (2,531,891,335) requests

-   Accumulated almost 9,000 GB of data egress 

-   The highest daily responses in a single 24 hour period for Interlay occurred on the 21st of December 2022 with 92,949,041 

-   The highest daily responses in a single 24 hour period for Kintsugi occurred on the 20th of December 2022 with 66,337,717

-   At the end of this period the 90 day combined uptime for Interlay and Kintsugi was 99.99%

**Full Proposal can be found here:** [https://docs.google.com/document/d/1pPMvUxpWc0tX70t12yW9QskbrF1VY8vKCo3sFw2E_TY/edit?usp=sharing](https://docs.google.com/document/d/1pPMvUxpWc0tX70t12yW9QskbrF1VY8vKCo3sFw2E_TY/edit?usp=sharing)

**Raw data can be found here:** [https://docs.google.com/spreadsheets/d/18fhVtJ7E-7tPrtsjqb4Buit8K_AWq-J79PkKd4NjTRs/edit?usp=sharing](https://docs.google.com/spreadsheets/d/18fhVtJ7E-7tPrtsjqb4Buit8K_AWq-J79PkKd4NjTRs/edit?usp=sharing)

OnFinality is a service that helps people access new blockchain protocols by reducing the costs of running a full node. They manage all the nodes for their users and distribute them across the world to achieve global scalability. They also provide access to one-click deploy dedicated nodes to any cloud of your choosing.

OnFinality has made a lot of improvements to their Ultimate API service, focusing on performance/reliability, providing more value, and cost optimization. They strive for a minimum of 99.99% reliability and have invested in a team dedicated to optimizing their application gateway and caching layer to provide the fastest possible service for their customers.

OnFinality has served a combined total of over 2.5 billion requests and accumulated almost 9,000 GB of data egress. The highest daily responses in a single 24 hour period for Interlay occurred on the 21st of December 2022 with 92,949,041, and for Kintsugi on the 20th of December 2022 with 66,337,717.

OnFinality has lodged proposals to the Kintsugi treasury, which have always been successful. They plan to continue providing RPC API support for Kintsugi and Interlay and will separate Kintsugi and Interlay costs and lodge two separate treasury proposals referencing this original discussion post.

OnFinality High Performance Public Infrastructure

Secret

**INTR to Omnipool**


I have seen that recently various incentives have been made for iBTC pairs in different Dexs paid in INTR

So I would like to propose the following initiative:

**Provide INTR as liquidity in the Omnipool** (by design it allows LPing a single token) in order to access a large number of assets that will expand over time, which by providing liquidity, is as if we were opening a pair with each Omnipool asset, without the need to be incentivizing separate pools,

and in turn the Interlay community, will be able to **manage the fees generated** through governance, opening up different possibilities

It should also be noted that the HydraDX community owns and already provides **10 iBTC as liquidity**, which currently makes Omnipool the best option in terms of slippage, you can review it for yourselves

Also INTR could be used as an incentive in the Omnipool **(this can be separated in another discussion and is not the main point of the proposal)** once Liquidity Mining is active and create a broader liquidity base (with the difference that the LM of the Omnipool rewards long-term LPs, since the more last the position in the Omnipool, more rewards will be generated, these positions can also be transferred)

For now I would like to propose and discuss the above ideas, so as a community we can decide what the terms would be.

1. There are incentives for iBTC pairs in different Dexs paid in INTR.
2. The proposal is to provide INTR as liquidity in the Omnipool to access a large number of assets without the need to incentivize separate pools.
3. The Interlay community can manage the fees generated through governance, opening up different possibilities.
4. The Omnipool currently has 10 iBTC as liquidity, making it the best option in terms of slippage.
5. INTR could be used as an incentive in the Omnipool once Liquidity Mining is active and create a broader liquidity base.

INTR to Omnipool 

Dear Interlay community, 

We've got a slightly awkward situation in our governance with respect to proposals #46 and #47. 

**TLDR**
- Stellaswap made a treasury proposal to help build up the liquidity of iBTC and INTR in their new, more efficient Pulsar AMM (Uniswap v3-style). https://interlay.subsquare.io/democracy/referendum/46
- That proposal passed with 88% "aye" votes and a comparably high turnout. 
- Unfortunately, an XCM bug caused the transfer to fail*
- The TC committee decided to re-execute and fast-track the proposal, considering it had clearly passed the vote. 
https://interlay.subsquare.io/democracy/referendum/47
- Fast-track only gives 3h to vote. Parties opposing the original proposal (a minority of the original vote) voted "No" again - but this time the proposal failed. 

**What now?**
It is important to understand why the re-execution of the proposal was blocked. 

- Did the community change its mind with respect to the Stellaswap proposal? 
- Or was there simply insufficient time for everyone to vote on the re-execution? 

We have 3 options on how to proceed: 

1. Re-vote on the same proposal with a full 7-day vote. 
2. Re-execute via fast-track (if majority of the community is clearly in favor)
3. Change the proposal and put to 7-day vote

Either way, we need to come to an agreement. 
FYI: the Pular pool was set to launch next week, considering the original proposal had passed. 

---
* The runtime upgrade in referendum #45 updated the Interlay XCM weight types. This change was not accounted for when the StellaSwap referendum #46 was made. The referendum passed but due to the change in the XCM weight types, #46 cannot be decoded by the chain and thus not executed. No XCM transfer happened. 

Interlay community had a proposal to build up the liquidity of iBTC and INTR in their new Pulsar AMM. 
The proposal passed with 88% "aye" votes but an XCM bug caused the transfer to fail. 
The TC committee decided to re-execute and fast-track the proposal, but this time the proposal failed. 
Now, the community has three options on how to proceed. 
They need to come to an agreement as the Pular pool was set to launch next week.

Stellaswap Liquidity Program - Vote passed, XCM msg failed, re-execution downvoted 

**Pool description**
A treasury proposal ([link to proposal](https://interlay.subsquare.io/democracy/referendum/30)) for using treasury funds to incentivise iBTC/DOT pool on Arthswap passed with community voting in November 2022. The pool was setup to bring iBTC into Astar network, it was also the first step for getting iBTC qualified as a collateral asset on the lending/borrowing markets like SiO2 and Starlay on Astar. 

The main objective for incentivising this pool was to build enough liquidity for iBTC on Astar to achieve qualification as a lending collateral asset. Arthswap proposed to provide 2,934,000 ARSW incentives and Interlay treasury would match with 312,000 INTR. The targeted liquidity of the iBTC/DOT pool by the end of 3 months incentive period, was 200k USD. However, the rewards were not fully distributed by the end of the incentive period. 

Arthswap farming pools deploys a rule of “the multiplier”, which is the weight of the percentage for the ARSW farming reward distribution to the pool, changes according to the liquidity, starting with a multiplier of 1. The more liquidity is in the pool, the higher the multiplier could get and the more rewards could be contributed by ArthSwap. At the end of the incentive period, the pool size did not hit the line which changes the multiplier, therefore there remains a large percentage of unused INTR incentives. Arthswap team, as agreed, refunded the unused reward allocation for INTR to the Interlay Treasury.

### Pool Performance Details:

**Incentive length:** 3 months
**Incentive period**: 2022/11/09 → 2023/02/10

**Total incentives planned:** 
312,000 INTR
2,934,000 ARSW

**Target TVL at the end of incentive period:** 200,000 USD
**TVL (02/06/2023):** 49,820 USD

**Estimated APR at Target TVL:** 
**APR (02/06/2023):** 23%

**Total INTR  incentive planned:** 312,000 INTR in 3 months period
**Actual INTR incentive payout:**  12,800 INTR in 3 months period

**Incentive surplus:** 299,200 INTR
**The incentive that has not been paid out by the end of 3 month period has been returned to the Interlay Treasury.**

Transaction block: [https://blockscout.com/astar/tx/0x7ff56a35895c2123b3f15aa882c2540be528decfeb63428fdbbc4ddda164625a](url)


### **Conclusion:**
iBTC/DOT pool has achieved the purpose of bringing iBTC to Astar community. However, the performance of the liquidity pool was below expectations. The incentive payout structure on Arthswap did not allow the distribution of all incentive within the planned incentive period, which led to the result of this pool not hitting the TVL target for qualifying iBTC as a lending collateral asset on Astar lending markets. Surplus INTR incentives have been returned to Interlay Treasury team. 



- A proposal was made to use treasury funds to incentivize a pool called iBTC/DOT pool on Arthswap.
- The pool aimed to bring iBTC into Astar network and qualify it as a collateral asset on lending/borrowing markets.
- The target liquidity of the pool was $200k USD, but it did not reach that level by the end of the incentive period.
- The Arthswap team refunded the unused reward allocation for INTR to the Interlay Treasury.
- The iBTC/DOT pool achieved its purpose of bringing iBTC to Astar community, but its performance was below expectations.

Performance review of iBTC/DOT pool on Arthswap

Dear Interlay Community,

We propose a new vision document for Interlay v2, following up on the original technical paper from 2018 and the Interlay v1 specification.

As a community, we have been working hard to bridge the gap between Bitcoin and DeFi, shipping the first-ever fully decentralized and economically trustless BTC bridge. iBTC can already be used in DeFi protocols across numerous parachains and over $10 million has been processed in bridge volume across Kintsugi and Interlay. The bridge has undergone 5 audits and withstood a trial of fire during the recent market crash - fulfilling the original vision of Interlay v1. 

Interlay v2 proposes to take the next step toward the mass adoption of Bitcoin: making access to decentralized BTC finance as easy as using an ATM.  This is achieved by introducing native DeFi functionality to the network: a decentralized AMM-based exchange (Uniswap v2 model and Curve Stableswap) paired with a liquidity protocol for BTC borrowing and lending (Compound v2 model). By creating markets catering to Bitcoin holders and building deep liquidity in these protocols, Interlay will enable easy, one-click access to Bitcoin-centered DeFi use cases, ranging from simple passive liquidity provision to tailored long/short leverage positions.

The whitepaper provides a deep dive into the Interlay v2 architecture, covering consensus, (bridge and oracle) infrastructure, DeFi, and application layers. Further, it proposes updates to the fee model as well as the economic model of the native INTR token (short “INTRnomics”). Finally, it offers an outlook on upcoming product and feature improvements, as well as open “moonshot” problems that have the chance to turn into zero-to-one innovations. 

We call the community to review this vision document and share thoughts, ideas, and suggestions - and ultimately **put the proposed course of action to a vote**. 

Your voice as a community, as always, defines the next steps for Interlay - and in this case, for the future of Bitcoin DeFi. 

[Interlay v2: Bitcoin Finance, Unbanked (v0.1)](https://gateway.pinata.cloud/ipfs/QmWp62gdLssFpAoG2JqK8sy3m3rTRUa8LyzoSY8ZFisYNB)


For those who prefer experimentation over reading: a first, raw alpha of the DeFi Hub is already [live on testnet](https://kintnet.interlay.io/)


Interlay is a community that has created a bridge between Bitcoin and DeFi. They have shipped the first-ever fully decentralized and economically trustless BTC bridge called iBTC. Interlay v2 proposes to make access to decentralized BTC finance as easy as using an ATM by introducing native DeFi functionality to the network. They plan to create markets catering to Bitcoin holders and building deep liquidity in these protocols, enabling easy, one-click access to Bitcoin-centered DeFi use cases. They have released a whitepaper that provides a deep dive into the Interlay v2 architecture, covering consensus, infrastructure, DeFi, and application layers. They call the community to review this vision document and share thoughts, ideas, and suggestions. A first, raw alpha of the DeFi Hub is already live on testnet for experimentation.

Interlay v2: Bitcoin Finance, Unbanked

# Capacity-based Vault Revenue Distribution

tl;dr. 

* The current Vault reward distribution model is based on how much iBTC has been minted with a Vault. 
* This model presented itself unsuitable, both in terms of fairness, capital efficiency, and benefit to protocol growth. 
* The proposed v2 model hence takes into account iBTC capacity, i.e., how much BTC a Vault can secure, unrelated to how much is already being used. 
* The v2 model focuses on increasing minting capacity for new users ahead of the Interlay 2.0 DeFi hub launch, which aim to onboard significant numbers of BTC DeFi users onto Interlay. 


This is a discussion post proposing the new model ahead of deployment to the Kintsugi testnet and as auxiliary information to the Vault block reward adjustment discussion. 

The actual activation will require a dedicated governance proposal by the community.  

## Problem

In v1, Vaults revenue is composed of volume-based bridging fees (mint and redeem) and block rewards in the native INTR token, as operational subsidy while bridge revenue is growing.

Both income streams are distributed among all Vaults, \emph{proportional to how much iBTC was minted with each Vault}. 

This model presented itself non-optimal. In absence of BTC liquidity flowing into other parachains due to macroeconomics and slow enactment of unique DeFi opportunities, Vaults are forced to self-mint iBTC in order to earn rewards. This has two negative effects: on one hand, the APR for Vaults is less predictable. On the other hand, the bridge is kept at high capacity without the BTC flowing into DeFi applications: Vaults do not need to take extra risk considering high block rewards, and not all operators are comfortable with DeFi liquidity provision (and they should not be forced to). 


## Solution

**Capacity-based Reward Distribution**

The proposal is hence as follows: 

Distribute block rewards based on **available minting capacity**, i.e., locked collateral and the (custom) thresholds, rather than using minted iBTC as basis. 

The key benefit Vaults provide to the Interlay ecosystem is for users to be able to mint iBTC and to bridge it back to BTC. This new model hence focuses on incentivizing total mint capacity, i.e., how much iBTC a Vault can back in total.

The total mint capacity of a Vault is measured by the provided collateral divided by the (custom) secure collateral threshold. 

**Vaults that are not accepting new issue requests, have zero capacity.**

Vaults with more collateral provided or lower / no custom collateral thresholds provide more capacity overall to the network, taking on a higher risk and thus receive higher fees.


vINTR holders will vote on a weighting between each collateral asset, depending on multiple factors, including risk, benefit to protocol security, and capital cost (also considering external factors). 

The same capacity of a Vault with two different collateral assets might result this in a different reward.

**The issue, redeem, and replace fees are not affected by this.**

The exact model is as follows: 

![v2 formulas](https://api.ipfsbrowser.com/ipfs/get.php?hash=QmXgHRpwWozFgn5o8Mx5cRZ8AA5Go6yLuG8bB92WU2trkB)

## Expected Impact

This ensures that vaults are incentivized to provide sufficient minting capacity to allow users who want to use BTC in DeFi to mint new iBTC. This simultaneously serves as exit liquidity for vaults who want to withdraw their collateral. 

In addition, vaults that are willing to take up a higher risk of being liquidated receive proportionally higher rewards for doing so. 

To avoid excessive risk taking, the protocol enforces an lower limit on the collateral threshold that determines the risk for a vault.

This proposal is an important step to scaling the iBTC bridge ahead of the Interlay 2.0 DeFi hub launch, which aims to attract new (BTC DeFi) users to both Interlay and Polkadot as a whole.

Here is a summary of the SubSquare post:

- The current Vault reward distribution model is based on how much iBTC has been minted with a Vault.
- This model is not fair, efficient, or beneficial to protocol growth.
- The proposed v2 model takes into account iBTC capacity, i.e., how much BTC a Vault can secure, unrelated to how much is already being used.
- The v2 model focuses on increasing minting capacity for new users ahead of the Interlay 2.0 DeFi hub launch.
- The new model incentivizes vaults to provide sufficient minting capacity to allow users to use BTC in DeFi and serves as exit liquidity for vaults who want to withdraw their collateral.

Recommendation for New, Capacity-based Vault Reward Distribution Model

# Summary
A new type of vault can be activated using USDT via Statemint as collateral. More details below.

# Proposal
Currently only DOT is accepted as collateral for vaults. One of the main goals for iBTC stability is to diversify the number of tokens that can be used as collateral. This has also been requested by current iBTC vault operators.

The next asset suggested as collateral is a USD stablecoin - more specifically USDT. It is the stablecoin that we can enable the fastest and has been requested by the currently active vaults.

USDT can be imported from Statemint via Interlay's Crosschain Transfer XCM

**Please find below the parameter configuration proposed for the “USDT vaults”:**

**Initial collateral ceiling:** 200.000,00 USD equivalent
**Secure collateral threshold:** 155%
**Premium redeem threshold:** 145%
**Liquidation threshold:** 135%
**Minimum collateral threshold:** 150 USDT

For context, we run modelling and simulations for every new collateral type as well as many other references and points of comparison before we conclude on the collateral rates.

The next step is hence to activate this vault type with the above parameters via an on-chain governance proposal.

Please be aware that this is only a discussion post and a formal on-chain proposal will follow.

**Resources:**
USDT Asset Registered: https://interlay.subsquare.io/democracy/referendum/27
Interlay - Statemint XCM Channel: https://interlay.subsquare.io/democracy/referendum/32
Governance guides: https://docs.interlay.io/#/guides/governance (incl. how to make a proposal)
Python code used for analysis of new assets proposed as vault collateral: https://github.com/interlay/collateralization-analysis

# Relevant Information For Submitting The Proposal

## Extrinsic

https://polkadot.js.org/apps/?rpc=wss%3A%2F%2Fapi.interlay.io%2Fparachain#/extrinsics/decode/0x0302143d0b010200000000010000c7eed829bc1200000000000000003d0a010200000000010000514c516f1f1400000000000000003d09010200000000010000dba9c9b4821500000000000000003d080102000000000100d0ed902e00000000000000000000003d07010200000080d1f008000000000000000000000000

## Proposal

https://polkadot.js.org/apps/?rpc=wss%3A%2F%2Fapi.interlay.io%2Fparachain#/extrinsics/decode/0x030208460af9010302143d0b010200000000010000c7eed829bc1200000000000000003d0a010200000000010000514c516f1f1400000000000000003d09010200000000010000dba9c9b4821500000000000000003d080102000000000100d0ed902e00000000000000000000003d07010200000080d1f0080000000000000000000000004600b54b8e3b2b87d7eb7974dc34894f1a64412f9417306e062ae98258375a981da80b00a89c134602

- A new type of vault can be activated using USDT via Statemint as collateral.
- Currently, only DOT is accepted as collateral for vaults.
- USDT can be imported from Statemint via Interlay's Crosschain Transfer XCM.
- The proposed parameter configuration for the “USDT vaults” includes an initial collateral ceiling of 200.000,00 USD equivalent, secure collateral threshold of 155%, premium redeem threshold of 145%, liquidation threshold of 135%, and minimum collateral threshold of 150 USDT.
- The next step is to activate this vault type with the above parameters via an on-chain governance proposal.

Enable A New Vault Type With USDT As Collateral


Tl;dr. 

* KINT and INTR Vault block rewards are currently too high, considering market conditions and in comparison to competitors / projects with similar risk profile.
* This proposal suggests to adjust Vault block rewards to a more sustainable level, updating the KSM / DOT collateral requirements to competitive and more capital-efficient rates, and introducing regular review cycles to assess ROI for protocol and Vault operators. 
* The saved funding will remain with the network treasury, to be used as governance decides, e.g.. to bootstrap kBTC/iBTC growth as market conditions improve and help build liquidity in the native AMM and lending protocols set to launch on Kintsugi and Interlay in early 2023 (more details in upcoming Interlay 2.0 whitepaper - [read 2.0 roadmap announcement](https://medium.com/interlay/interlay-2-0-roadmap-c6387d9d1abb)).


## Introduction: Vaults on Kintsugi/Interlay

Vaults are the heart of the Interlay & Kintsugi networks: they secure BTC while kBTC/iBTC is being used in DeFi. To do so, they deposit collateral in different assets, insuring users against exchange rate fluctuations and loss of BTC. As such, the costs of running a Vault are twofold: 


1. Infrastructure costs and maintenance labor for running the Vault software
2. Capital (opportunity) costs for putting up collateral

During the bootstrap phase (while the Interlay and Kintsugi protocols do not generate sufficient bridge revenue to cover all operational costs), the treasury pays block rewards to Vaults in the native KINT (on Kintsugi) and INTR (on Interlay) tokens. 30% of the treasury was proposed to be used for this purpose over the first 4 years of network operation, 12% in the 1st, 9% in the 2nd, 6% in the 3rd and 3% in the 4th year. Block rewards are split among Vaults proportional to how much BTC has been minted with them (for an individual Vault: vault_BTC / total_BTC_minted). 


## Problem

The current KINT and INTR reward emission is unsustainable: 



* ~80% APR on Kintsugi
* ~65% APR on Interlay 

as opposed to what can be observed on the market from competitors/node operations comparable to the Kintsugi / Interlay risk profile: between 12% and 22.8% [3]. 

This creates a negative feedback loop: there is too much emission, disproportional to the adoption curve, and Vaults are incentivized to sell KINT/INTR in anticipation of being able to repurchase it cheaper at a later point in time. This in turn creates a downwards spiral of both token prices that slowly but steadily burns treasury funding and reduces returns for Vaults (despite the high emission). 


## Goal

The goal of this proposal is to adjust Vault block reward rates to be more sustainable while keeping incentives for operators high enough - and more reliable.


## Solution


### 1) Reduce collateral thresholds. 

The latest collateral risk models [1] suggest the following collateral thresholds for KSM (on Kintsugi) and DOT (on Interlay): 

**KSM (on Kintsugi)**



* liquidation: 130%
* premium-redeem: 145%
* secure (min. when minting): 160%

**DOT (on Interlay)**



* liquidation: 125%
* premium-redeem: 140%
* secure (min. when minting): 155%

This change **reduces the capital requirements of Vaults by ~40%**.

For more information on the meaning of individual thresholds, see [2]


### 2) Adjust Vault block rewards to competition. 

The proposal is to adjust the Vault rewards such that: 



* **APR on Kintsugi is ~30%** assuming the amount of collateral locked at the time of this proposal. This proposal updates the block reward from 0.456621004566 KINT to 0.102803978513969 KINT.
* **APR on Interlay is ~25%** assuming the amount of collateral locked at the time of this proposal. This proposal updates the block reward from 45.6621004566 INTR to 9.866085649312430 INTR. 


###  3) Regular Review  & Adjustment of Vault Economics.

Rather than having a static model, we propose that Vault economics be reviewed on a regular basis, allowing to react and adjust for external/macroeconomic events.

The community, including Vault operators, can make recommendations/requests to adjust the Vault rewards schedule via the Governance portal (guides provided). 

The process to adjust rewards will be greatly simplified over the next months with upcoming improvements to governance (more details are incoming in the Interlay 2.0 whitepaper).


## Expected Result

The optimization of collateral thresholds combined with the adjusted reward schedule is expected to reduce emissions as follows:



* KINT emission by ~78% 
* INTR emission by ~79%


## Why should community vote in favor of this proposal? 

This proposal makes a big step to improving the economic stability and outlook of both Kintsugi and Interlay. 

The current emission schedule was conceived during a growing crypto market, in anticipation of reaching significant iBTC targets by EOY 2022. However, due to recent macro-economic events in crypto (Luna, 3AC, Celsius and now FTX), as well as the two hacks (Nomad impacting Moonbeam and aUSD on Acala) affecting Polkadot, the growth of DeFi on Dotsama has not been as fast as hoped. As a result, kBTC and iBTC utilization rates are low, with most BTC sitting on Kintsugi/Interlay. 

The high initial emission was also a measure to reward early technical risk and to cover the high collateral requirements imposed at launch (260% over-collateralization for KSM/DOT Vaults).  The technical risk of the bridge can be considered significantly reduced by now. The bridge has been operating successfully since March 2022 on Kintsugi and since August 2022 on Interlay, withstanding the recent market turbulences. The removal of the aggressive BTC theft reporting [4]  has also greatly reduced the risk of wrongfully slashing Vaults.  The proposed reduction of collateral thresholds to competitive rates also constitutes a big step towards Vault capital efficiency. 


## References

[1] **Interlay Vault collateral risk modelling framework.** [https://github.com/interlay/collateralization-analysis](https://github.com/interlay/collateralization-analysis) 

[2] **Vault collateral thresholds.** [https://docs.interlay.io/#/vault/overview?id=collateral](https://docs.interlay.io/#/vault/overview?id=collateral) 

[3] **APR comparison to similar projects**. [https://api.ipfsbrowser.com/ipfs/get.php?hash=QmPhP8utFLhharELDeN6Njbc2234DGxnc4A73wxf2JHwPJ](https://api.ipfsbrowser.com/ipfs/get.php?hash=QmPhP8utFLhharELDeN6Njbc2234DGxnc4A73wxf2JHwPJ) 

[4] **Kintsugi proposal discussing removing theft-reporting.** [https://kintsugi.subsquare.io/democracy/referendum/52](https://kintsugi.subsquare.io/democracy/referendum/52) 

-- 
EDIT 23 Nov 2022 15:34 UTC: added link to Interlay 2.0 roadmap announcement


Here's a summary of the SubSquare post:

- Vaults are important to the Interlay and Kintsugi networks because they secure BTC while kBTC/iBTC is being used in DeFi.
- The current KINT and INTR reward emission is too high and unsustainable, creating a negative feedback loop.
- The proposal suggests reducing collateral thresholds and adjusting Vault block rewards to be more sustainable while keeping incentives for operators high enough.
- Regular reviews and adjustments of Vault economics will be made to react and adjust for external/macroeconomic events.
- The expected result is a reduction in KINT and INTR emission, which will improve the economic stability and outlook of both Kintsugi and Interlay.

Recommended Adjustment to Vault Reward Schedule on Kintsugi and Interlay

Hello Interlay Community, 

Last week on the 13th of October at 19:45 we enacted the 1.19 runtime upgrade on Kintsugi. 
We are aiming to perform a similar upgrade to Interlay. 
Unless we discover any issues or bugs on Kintsugi following the upgrade (none so far), a proposal will be submitted to perform the 1.19 upgrade for Interlay on Wednesday this week. 

**IMPORTANT!** - **This proposal will be submitted on Wednesday the 19th of October** and **upgraded to a 4h fast-track referendum**. The 1.19 upgrade on Interlay will then be **enacted on Thursday the 20th of October in the morning, est. 8-10 a.m. UTC timezone**.
More information and details about the exact time of enactment will be provided on Wednesday. 

**Please find below the details regarding the changes contained in 1.19 as well as the link to the Kintsugi referendum:**
- Vaults can now self-redeem (burn kBTC for unlocking collateral) without sending BTC
- Removed the refund protocol since theft reporting was already eliminated
- Issue requests can now be executed after expiry if the Vault has sufficient collateral
- Allows issue requests to be cancelled prematurely by the user (may slash griefing collateral)
- Collators can now lock vKINT to register as an authority
- Adds generic registry to store client release info (for auto-updater)
- Includes all relevant changes to support polkadot-v0.9.26

**Kintsugi referendum:** [https://kintsugi.subsquare.io/democracy/referendum/64](https://kintsugi.subsquare.io/democracy/referendum/64)

Interlay Community Upgrade:

- Interlay is getting an upgrade on Thursday, October 20th.
- The upgrade will happen in the morning, between 8-10 a.m. UTC timezone.
- The upgrade will include changes to Vaults, Issue requests, and Collators.
- Kintsugi has already received the upgrade without any issues.
- More information about the upgrade will be provided on Wednesday.

1.19 Runtime Upgrade for Vaults Scheduled For Wed the 19th of October

Now that iBTC has finally launched, the next step is to launch integrations with Polkadot parachains. As a decentralized network, decisions lie with the community - and so we want to share all information and opportunities we are aware of so far to initiate discussions. 

**Goal:**
- Share a regular overview of the integration roadmap to increase community awareness
- Get feedback as early as possible (also for integration partners) to ensure fast execution
---

## Acala
*The Acala parachain is currently not fully operational as an aftermath of the aUSD incident. Follow the latest updates here: [https://acala.discourse.group/c/acala/16](https://acala.discourse.group/c/acala/16)*

**Paused**
- iBTC/aUSD pool: currently halted due to aUSD incident

**Targets**
- iBTC as aUSD collateral
    - Requirements: liquidity on iBTC/aUSD pool;
    - Status: paused until aUSD recovers; conversations with Gauntlet re. parameterization commenced;

**Exploration**
- iBTC on Pike finance money market ([https://www.pike.finance/](https://www.pike.finance/))
- iBTC + Tapio synergies ([https://www.tapioprotocol.io/](https://www.tapioprotocol.io/))
---

## Moonbeam

**Live**
- iBTC/GLMR pool on Stellaswap: [https://app.stellaswap.com/farm](https://app.stellaswap.com/farm)
    - 3rd largest pool on Stellaswap ($370k liquidity)
    - Incentivized by STELLA. Governance proposal by Stellaswap to add INTR incentives from treasury is up for voting here: [https://interlay.subsquare.io/democracy/referendum/18](https://interlay.subsquare.io/democracy/referendum/18) (currently passing but with discussions in the comments)

**WIP**
- iBTC pool on Beamswap
    - Off-chain voting about which the paired asset was completed. Results: INTR, DOT, multiUSDC (in that order) [https://voting.opensquare.io/space/interlay/proposal/QmRnD1yeP3PgVqDRUWpv7HPxTmD93WD66PfhD5xWbbdwAG](https://voting.opensquare.io/space/interlay/proposal/QmRnD1yeP3PgVqDRUWpv7HPxTmD93WD66PfhD5xWbbdwAG)
    - After discussion with Beamswap, we suggest launching a multiUSDC pair as INTR and DOT do not have deep liquidity on Beamswap and USDC enables easier assessment of impermanent loss risks. In addition, INTR and DOT are hot candidates for targeted integration with Curve (see below).

**Targets**
- Curve Finance: multiple interesting options available, including but not limited to:
    - Interlay ecosystem 3pool: iBTC/INTR/DOT
    - Polkadot version of the infamous ‘tricrypto’ pool: iBTC/DOT/USDx (USD stablecoin is open for debate, USDT and aUSD being options)

**Exploration**
- iBTC on Moonwell money market:
    - Requirements: enough iBTC liquidity on Moonbeam for flashloan liquidations on Moonwell; Chainlink price oracle (this one is a blocker)
- Further Curve Finance pools:
    - Polkadot L1 index pool: Containing tokens of largest parachains: ACA, GLMR, INTR, PARA, ASTR
    - BTC 3pool: iBTC/wBTC/renBTC (other BTC versions to be live on Polkadot first)
- iBTC on Midas Capital money market ([https://www.midascapital.xyz](https://www.midascapital.xyz/))
- iBTC and INTR as collaterals on DAM Finance lending protocol ([https://dam.finance](https://dam.finance/))
---

## Parallel Finance
XCM channel is WIP, full integration ETA 1-2 weeks (incl. bridge UI). Governance proposal open here: [https://interlay.subsquare.io/democracy/referendum/19](https://interlay.subsquare.io/democracy/referendum/19) 

**Target**
- INTR pool on Parallel DEX
    - Requirements: XCM channel open
    - Status: Currently assessing tokens pairs (will be put up for community feedback). Needed so Parallel users can get INTR to pay for iBTC bridge and XCM fees.
- iBTC on Parallel DEX
    - Requirements: XCM channel open
    - Status: Currently assessing token pairs and running calculations. Will be put up for community feedback.

**Target**
- iBTC as a borrowing asset on the Parallel money market
    - Requirements: enough iBTC liquidity on Parallel DEX so that safe liquidations are possible;
---

## Astar
XCM channel is WIP, full integration ETA 2-3 weeks (incl. bridge UI). Governance proposal open here: 
[https://interlay.subsquare.io/democracy/referendum/16](https://interlay.subsquare.io/democracy/referendum/16)

**Targets**
- iBTC on Arthswap DEX ([https://app.arthswap.org/#/swap](https://app.arthswap.org/#/swap))
    - Requirements: Astar XCM channel open.
    - Status: Pairs are being explored and will be put up for community feedback.

**Exploration**
- iBTC on Starlay Finance ([https://starlay.finance/](https://starlay.finance/)) and Si02 Finance ([https://www.sio2.finance/](https://www.sio2.finance/)) money markets
- iBTC on Sirius Finance ([https://www.sirius.finance/](https://www.sirius.finance/)) and Kagla Finance ([https://kagla.finance/](https://kagla.finance/)) stable pools
---

**Playbook for iBTC launch on new (para)chains**
The suggested order of execution is as follows:
1. Launch a decentralized bridge (e.g. XCM)
2. Launch INTR pool, so users of the new chain can pay for iBTC mint/redeem and bridge fees. Preceded by community poll re. pairing asset
3. Launch iBTC pool and create deep liquidity. Preceded by community poll re. pairing asset
4. Launch money market to enable lending (needs liquidity for liquidations)
5. Explore further Dapp integrations, prioritizing unique use cases
---

**Call for Feedback**
Ultimately, the decision about integrations lies in the hands of the community. Most DEXes and Dapps will be requesting incentives from the Interlay treasury, which requires consensus among INTR stakers. In consideration of time and effort invested, sharing feedback as early as possible is important to achieve fast execution (i.e., have an overall idea of what we all want before a Dapp makes a proposal for incentives). 
---

**How?**
- Comment on this post
- Open dedicated discussion posts for specific integrations and share your opinion

SubSquare has launched iBTC and is now planning to integrate with Polkadot parachains. Here are the key points for a second-grade student:
- SubSquare launched iBTC and wants to integrate with other networks.
- They want to work with other communities to make decisions together.
- They are exploring different options for integrating iBTC with other networks like Acala, Moonbeam, Parallel Finance, and Astar.
- They are looking for feedback from the community to make decisions faster.
- They have a plan to launch iBTC on new networks in a specific order, starting with a decentralized bridge and ending with exploring further Dapp integrations.

DeFi: 2022 H2 community update

Hi there!

This post is related latest iBTC pool at [https://voting.opensquare.io/space/interlay/proposal/QmRnD1yeP3PgVqDRUWpv7HPxTmD93WD66PfhD5xWbbdwAG](url), as well as [https://interlay.subsquare.io/democracy/referendum/18](url) and others.

At current market situation (entire market dip, Nomad crash, aUSD crash etc) i actually don't find strategic reasons for rewarding users at doubtful DEXes in pair with doubtful tokens. Finally, most of times users only get negative experience and lose money, as well as INTR dump under additional selling pressure.

I stongly considering we firstly need long-term marketing strategy. Here are few points i have about it:

- INTR rewards should be very small and greedy)
- the only DEX where people should be available to exchange INTR tokens should be Interlay frontend, and the only pair available there should be iBTC/INTR.
- the pairs we should pick up to reward at other DEXes should be very stable and heavy. For now these are only DOT and native USDT.
- some portion of saved INTR tokens from no-sense rewarding might be spent for better marketing, to make community better understand why iBTC is better then any centrilized brigde; some web-pages, videos etc with incidents of 9-figured amounts of hacks of other bridges

Your thoughts guys?


- The post talks about a new iBTC pool and other related proposals.
- The author doesn't think it's a good idea to reward users for using doubtful DEXes and tokens, especially during a market dip.
- The author suggests focusing on a long-term marketing strategy instead.
- They recommend only allowing iBTC/INTR pair on Interlay frontend and only rewarding stable pairs like DOT and USDT on other DEXes.
- The author suggests using some of the saved INTR tokens for better marketing to educate the community about the benefits of iBTC and the risks of other bridges.

INTR incentives on DEXes

Considering the INTR tokens that are staked, only a few tokens are actually used for voting.

Since all INTR token holders benefit from the decisions of those who are voting, why not increase the staking rate for accounts that participate in voting, or decrease the staking rate for accounts that do not participate in voting?

If they are not voting and are simply getting only rewards from staking, we have a situation that is not the original function and purpose of the system.

A difference of about 10-20% would clarify the benefits of voting and encourage a more active discussion.

Translated with www.DeepL.com/Translator (free version)

- INTR tokens are used for voting but only a few tokens are actually used for it.
- Everyone benefits from the decisions made by those who vote.
- To encourage more active discussion, the staking rate could be increased for accounts that participate in voting or decreased for those that don't.
- If accounts are only getting rewards from staking without voting, it goes against the original purpose of the system.
- A difference of 10-20% in staking rates could clarify the benefits of voting.

Modification of staking rates to take into account participation rates in voting

### Summary
Now that staking and governance are live on Interlay, we would like to open an XCM channel with Moonbeam in order to facilitate transfers and further cross-chain developments and defi initiatives in between the 2 parachains.


### Discussion Point
**Any arguments against opening this XCM channel?**

We want to quickly open an XCM channel with Moonbeam as this will open many potential applications and use cases, such as liquidity pools, tokens to be considered as collateral or the option for users to transfer their iBTC to Moonbeam to be used there. 

We want to understand if the community has any strong argument against this action. If we don't see any strong opposition, we will proceed to open the channel and fast track any needed proposal towards opening this XCM channel. 

Author: Alex @Interlay

- Interlay and Moonbeam want to open an XCM channel to facilitate transfers and cross-chain developments.
- This will allow for many potential applications and use cases, such as liquidity pools and using iBTC on Moonbeam.
- Interlay wants to know if there are any strong arguments against opening this channel.
- If there is no strong opposition, they will proceed to open the channel and fast track any needed proposals.
- The author of the post is Alex from Interlay.

Open an XCM Channel with Moonbeam

### Summary
Vault block rewards are ready to be activated, according to the Interlay tokenomics: 30% of 4 year supply (i.e., 300 million INTR), emitted as follows:
* 40% in the first year (120 million INTR)
* 30% in the second year (90 million INTR)
* 20% in the third year (60 million INTR)
* 10% in the fourth year (30 million INTR)

Once Vault rewards are activated, iBTC minting can begin. The suggested iBTC launch date is 10th August. 

### Proposal

**Why do Vaults receive block rewards?**
Vaults are the heart of the Interlay network. Vaults are network participants who ensure BTC remains locked on Bitcoin while iBTC exists - that is, they enforce the 1:1 peg to locked BTC. To prevent misbehavior, Vaults lock collateral (at launch in DOT) with the parachain such that the collateral value always exceeds the value of the secured BTC. If a Vault misbehaves, their collateral is slashed and users reimbursed. 
Vaults take up liquidation risk as well: if the price of the collateral assets decreases significantly compared to BTC, Vaults may be liquidated and lose their collateral. Vaults hence receive INTR as reimbursement for their risk - and to ensure they can protect themselves against hostile governance takeovers. Anyone can become a Vault, anytime.

**Reminder:** Vaults only earn block rewards if they have BTC locked. Rewards are distributed based on each Vault’s share of the total BTC locked.


### Why activate now?
The parachain will soon be ready to start iBTC minting. The suggested launch date for iBTC Vaults is 10th of August. One of the next, and final steps before iBTC launch, is hence to activate Vault rewards via an on-chain governance proposal.
As always, we appreciate your time reviewing this proposal and welcome comments and feedback.

**Resources**
Interlay/Kuntsugi 101: https://docs.interlay.io/#/getting-started/interlay-101
Interlay token economy: https://docs.interlay.io/#/interlay/tokenomics 
Vault docs: https://docs.interlay.io/#/vault/overview


- Interlay is a network that allows people to use Bitcoin on other blockchains.
- Vaults are important participants in the Interlay network that ensure Bitcoin remains locked on the Bitcoin blockchain while being used on other blockchains.
- Vaults receive rewards in the form of INTR tokens for their work and risk.
- The rewards will be distributed over four years, with the most rewards given in the first year.
- The launch date for iBTC Vaults is suggested to be August 10th.

INTR vault rewards can now be activated

### tl;dr. 

- INTR rewards are currently not tied to iBTC TVL 
- This can skew incentives during the early stages of the network
- This proposal suggests to link INTR rewards to iBTC TVL
- The total INTR allocation to Vaults (30% of supply)  remains the same (if less is paid in month 1, more might be paid in month 2 if iBTC TVL increases)
- This parameter is subject to community review and can be easily adjusted based on iBTC TVL growth. 
- INTR rewards are capped to a fixed INTR per iBTC reward until 135.57 iBTC are minted.


### Introduction

Vaults are the heart of the Interlay network: they secure BTC while iBTC is being used in DeFi. To do so, they deposit collateral in different assets, insuring users against exchange rate fluctuations and misplacement of BTCCurrently, Vaults receive block rewards in INTR as incentive to provide this - premium - service (iBTC offers *by far* the highest security guarantees among all Bitcoin custody / wrapped BTC solutions)

Block rewards in INTR are paid every block. In the current configuration, there is no upper limit onto the block rewards that get paid out every block - i.e., there is no direct relation to the amount of actual iBTC minted and hence the real cost that Vaults have (the more BTC minted, the more collateral is needed). 

This means: if there is only a single Vault securing for example 0.1 BTC, this Vault will receive 100% of the rewards. Likewise, if there are 150 Vaults backing 1,000 BTC, the same amount of rewards are distributed every block and split among all Vaults based on their locked BTC. 

In principle, this provides incentive for more Vault operators to join the network and the emergence of a competitive market for BTC. However, during the early stages of network launch, there are numerous factors that can limit this growth, including but not limited to: (a) waiting for secure bridges to import diversified collateral assets, and (b) readiness of DeFi applications to accept iBTC and drive minting demand.

### Problems

In summary, we are looking at the following potential problems that have occurred on the Kintsugi canary network over first weeks of operation:

1. **Missing incentive to lock more collateral**: INTR/block reward is not tied to BTC TVL, which can lead to skewed incentives during early stages of growth. Until a competitive Vault market kicks off, individual Vaults may lack incentive to add more collateral to enable additional iBTC minting to users.

2. **Flooding INTR to the market**: Vaults might sell INTR tokens to recover some of their costs and generate profit. However, if the amount of INTR is completely disproportionate to the iBTC TVL and the maturity and scale of the network, this can lead to too much INTR entering the market early on - which in turn reduces the effectiveness of INTR block rewards as incentive mechanism. 

### Goal

The main goal of the INTR block rewards were/are to bootstrap iBTC liquidity and enable the Interlay network to onboard as many Bitcoin users into the Polkadot ecosystem as possible. The goal of this proposal is to tie the incentives to actual performance of Vault operators to ensure sustainable operation and growth.

### Proposal

This proposal suggests the introduction of an **INTR/iBTC per block reward rate** to tie INTR block reward payouts to iBTC TVL. This is a new parameter that can be updated via governance vote.

The more BTC is locked across all Vaults, the more INTR will be paid out by the network.

**The initial value proposed is 0.34 INTR per IBTC per block.**

This implies an INTR block reward (the maximum that can be paid out per block) of **45.66 INTR per block.** 

–> Hence, this proposal limits the rewards to max. 0.34 INTR per iBTC per block until the iBTC TVL reaches 135.57 iBTC and thereafter has no impact.

[This figure (LINK) shows both the INTR per block that is distributed among all Vaults as well as the INTR per iBTC locked per block that is distributed to all Vaults based on the total iBTC TVL.](https://drive.google.com/file/d/1oJ2EtBM3mt4RiudswQ8AmNbSjiWUZy-9/view
) Until 135.57 iBTC TVL the INTR per iBTC per block stays constant at 0.34 with this proposal. Above 135.57 iBTC TVL, as without this proposal, the INTR per iBTC per block decreases as the same amount of INTR block rewards are distributed among more iBTC TVL.

This initial rate takes into account projected iBTC TVL growth during the first weeks after launch, as well as the risks and costs associated with Vault operation. The goal is to maintain a highly competitive reward structure - but tied to performance/service provided (measured in iBTC TVL). 

As the bridge TVL and capacity grows, this parameter can be changed and adjusted via proposals made by the community. 

**Remains unchanged:**

- **The total allocation of INTR to Vaults (30% of supply) remains the same**. If less rewards are paid in Q1 due to low iBTC TVL, more rewards can be paid if TVL picks up in Q2. 
- **The INTR reward is still distributed proportionally among all Vaults based on how much BTC (%) they have locked** compared to the total minted iBTC amount.


### Suggestion to fast track - if the proposal is not contentious
Without fast-track, this proposal will go to vote in 5 days and iBTC launch will be earliest on 12 July.
All systems are ready to launch iBTC starting next week. 

Hence, we suggest: If there is agreement on this proposal, it should be fast tracked on Tuesday 5th July to ensure launch can proceed. 

If this proposal is contentious, then enough time should be left to discuss and agree - in that case, no fast-track is recommended.

### Next steps
1) Let’s discuss here
2) Please vote on the off-chain proposal to signal your position (**off-chain signalling ends Monday 4 July, 16:00 UTC**): https://voting.opensquare.io/space/interlay/proposal/QmQ88aKM3m1ER3Aq6ot8UJSf4yWUb46rjquLo1eV18QrHT
3)
 (a) If vast majority is in favor: fast-track on Tuesday 5th July 
 (b) If contentious, a longer discussion is needed. Then it needs to be decided if this should delay iBTC launch. 

### Resources:

- Vault rewards and risks: https://docs.interlay.io/#/vault/overview 
- Kintsugi kBTC dashboard: https://kintsugi.interlay.io/dashboard 

### Off-chain Signalling
https://voting.opensquare.io/space/interlay/proposal/QmQ88aKM3m1ER3Aq6ot8UJSf4yWUb46rjquLo1eV18QrHT


Interlay is proposing to link INTR rewards to iBTC TVL to ensure sustainable operation and growth of Vaults. INTR rewards are currently not tied to iBTC TVL, which can skew incentives during the early stages of the network. The proposal suggests introducing an INTR/iBTC per block reward rate that can be updated via governance vote. The initial proposed value is 0.34 INTR per iBTC per block. The total INTR allocation to Vaults remains the same, and the INTR reward is still distributed proportionally among all Vaults based on how much BTC they have locked compared to the total minted iBTC amount. The proposal can be fast-tracked on Tuesday, July 5th, if there is agreement.

Introducing an INTR/IBTC Reward rate

### Summary

Vault block rewards are ready to be activated, according to the Interlay tokenomics: 30% of 4 year supply (i.e., 300 million INTR), emitted as follows:

40% in the first year (120 million INTR)
30% in the second year (90 million INTR)
20% in the third year (60 million INTR)
10% in the fourth year (30 million INTR)

### Proposal

**Why do Vaults receive block rewards?**

Vaults are the heart of the Interlay network. Vaults are network participants who ensure BTC remains locked on Bitcoin while iBTC exists - that is, they enforce the 1:1 peg to locked BTC. To prevent misbehavior, Vaults lock collateral with the parachain such that the collateral value always exceeds the value of the secured BTC. If a Vault misbehaves, their collateral is slashed and users reimbursed. Vaults take up liquidation risk as well: if the price of the collateral assets decreases significantly compared to BTC, Vaults may be liquidated and lose their collateral. Vaults hence receive INTR as reimbursement for their risk - and to ensure they can protect themselves against hostile governance takeovers. Anyone can become a Vault, anytime.
Reminder: Vault only earn block rewards if they have BTC locked. Rewards are distributed based on each Vault’s share of the total BTC locked.

Like it was describe in the whitepaper, Early Vaults receive more rewards as they take up higher risk in terms of protocol maturity.

The same rules was introduce and apply for Kintsugi vaults.

### Next steps

   1. Let’s discuss here
   2. Please vote on the off-chain proposal to signal your position : https://voting.opensquare.io/space/interlay/proposal/QmYXjYiMQteMXQJwcoA7TWNDg755vqtu4WN5D7Pw5t4eqW

### Resources

Interlay/Kuntsugi 101: https://docs.interlay.io/#/getting-started/interlay-101
Interlay token economy: https://github.com/interlay/whitepapers/blob/master/Interlay_Token_Economy.pdf
Vault docs: https://docs.interlay.io/#/vault/overview

- Vaults are important for the Interlay network as they ensure BTC remains locked on Bitcoin while iBTC exists.
- Vaults lock collateral with the parachain to prevent misbehavior, and they take up liquidation risk as well.
- Vaults receive INTR as reimbursement for their risk and to protect themselves against hostile governance takeovers.
- Vaults only earn block rewards if they have BTC locked, and rewards are distributed based on each Vault's share of the total BTC locked.
- Early Vaults and Kintsugi Vaults receive more rewards as they take up higher risk in terms of protocol maturity.

Vault rewards distribution

Acala vs Karura has a common stablecoin aUSD, so why does Interlay vs Kintsugi not have a common BTC, it will increase capitalization and influence!

Merge iBTC vs kBTC

### Summary
Now that staking and governance are live on Interlay, we would like to open an XCM channel with Acala in order to facilitate transfers and further cross-chain developments and DeFi initiatives.


### Discussion Point
**Any arguments against opening this XCM channel?**

We want to quickly open an XCM channel with Acala as this will open many potential applications and use cases, such as liquidity pools, tokens to be considered as collateral or the option for users to transfer their iBTC to Acala to be used there. 

We want to understand if the community has any strong argument against this action. If we don't see any strong opposition, we will proceed to open the channel and fast track any needed proposal towards opening this XCM channel. 

Author: Alex @Interlay

- Interlay wants to open an XCM channel with Acala.
- This will allow for transfers and cross-chain developments in DeFi.
- Opening this channel will create potential applications and use cases.
- Interlay is seeking community feedback on any arguments against opening the channel.
- If there is no strong opposition, Interlay will proceed to open the channel and fast track any needed proposals.

Open an XCM channel with Acala

### Summary
Staking rewards are ready to be activated, according to the Interlay tokenomics: 5% of 4 year supply (i.e., 50M INTR), emitted linearly (i.e., 12.5M INTR per year).

### Proposal
Interlay’s governance model requires INTR to be staked to participate in voting. The more and the longer INTR are staked, the more voting power a user receives - and hence the more staking rewards. Rewards are distributed proportionally based on the voting power - so called vINTR (Note: vINTR is not a token and cannot be transferred. It is only a measure of an account’s voting power).

Staking is already active - but no rewards are currently distributed. Rewards are important to incentivize active staking and governance participation which is critical for Interlay’s security and growth as an ecosystem.

The staking user interface has been added to the Interlay Dapp (https://app.interlay.io/staking) making it easy for both beginners and advanced users to stake and participate in governance.

**The next step is hence to activate staking rewards via an on-chain governance proposal.**

Fellow Interlay innovators - as always, we appreciate your time reviewing this proposal and welcome comments and feedback.

**Resources**
Interlay Governance 101: https://docs.interlay.io/#/interlay/governance
Governance guides: https://docs.interlay.io/#/guides/governance (incl. how to make a proposal)
Interlay tokenomics: https://docs.interlay.io/#/interlay/tokenomics

- Interlay is ready to activate staking rewards for its token INTR.
- Staking means holding INTR to participate in voting and earn rewards.
- The more and longer INTR is staked, the more voting power and rewards a user receives.
- The staking user interface has been added to the Interlay Dapp to make it easy for users to stake and participate in governance.
- The next step is to activate staking rewards via an on-chain governance proposal.

Discussions